THE BIRPIND COOP AGRI MULTIPURPOSE SOCIETY LIMITED, JALANDHAR V. INCOME TAX OFFICER, NAKODAR, JALANDHAR

ITA 264/ASR/2018

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 1909 (ITAT-AMRITSAR)
• Duration Of Justice: 3 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2014-2015
• Appeal Filed On: 24-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Share purchase agreement; TDS
• Section: 40(a)(ia); 80P; 40a(ia); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER I.T.A. No. 264/Asr/2018 Assessment Year: 2014-15 The Birpind Coop Agri Multipurpose Society Ltd. Birpind, Nakodar Jalandhar. [PAN: AABTT2857P] (Appellant) Vs. ITO, Nakodar Jalandhar. (Respendent) Appellant by Sh. J.S. Bhasin, Adv. Respondent by Sh. S.M.Surendra Nath Sr.D. R. Date of Hearing 20.04.2022 Date of Pronouncement 19.05.2022 ORDER Per: Anikesh Banerjee, JM: The impugned order was filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeal)-2, Jalandhar, [in brevity the CIT(A)] bearing appeal no. 2/10426/16-17/CIT(A)/Jal date of order 16.03.2018, passed u/s 250(6) of the Income Tax Act 1961 [in brevity the Act] for A.Y. 2014-15. The said appeal was arising out from the order of the ld. ITO Nakodar, order passed u/s 143(3) order dated 27.12.2016. I.T.A. No. 264/Asr/2018 2 2. The assessee took the following grounds which are reproduced as under: “a) The CIT(A) has erred in accepting the word ''NON MEMBER'' despite confirming the fact that the word ' 'NON MEMBER' ' has only been mentioned to confirm that these members are not original members (as the society is running since 07.12.1919) but are registered after the original members have either expired or have transferred their shareholding to that members and hence those non members are actually holding shares of two types i.e. original shares and also shares newly allotted to them. Actually all of these are shareholders of the society since a long time.(list enclosed) On the facts submitted and in the circumstances, he ought to have accepted the plea of the assessee, that the society is working only with members. b) A list of total shareholding/ members of the society was submitted to the CIT(A) which included names of all shareholders as well as amounts of deposits and loans and also since when they are shareholders, which ought to have been accepted as sufficient evidence of all share holders being registered. However during appeal in Aug. 2017, during appeal proceedings, Apex Court held in the case of Citizens Cooperative Society that the society should have dealt with only members, the learned CIT(A) without verifying the fact that the society is actually dealing with members and without verifying I.T.A. No. 264/Asr/2018 3 the facts as given by the assessing officer where he made additions only on the grounds of Primary Cooperative Bank, confirmed the addition. c) While disallowing claim u/s 194 (3),The learned CIT(A) also erred in treating all the new shareholders as un registered, because without registering shares can not be issued to any person. d) The learned officer also erred in mentioning number of members and non members at 550 and 801 whereas the assessing officer actually pointed out the numbers at 547 and 540. Actually total number of members/ shareholders is 547 who are having multiple accounts and total number of accounts is 796, a list of which is enclosed. e) The assessing officer also imposed penalty on the assessee which should have not to be imposed as the question is of law and facts were not verified.” 3. Factual Matrix:- Brief fact of the case is that the assessee is a cooperative society claimed deduction during filing of return u/s 80P of the Act amount of Rs.56,44,532/-. The assessee invested the amount to the member and non member / nominal member. The moot issue is that the other than member the status of other members would be nominal member or non-member. The ld. AO added back the amount of Rs.56,44,532/- as I.T.A. No. 264/Asr/2018 4 interest on deposits earned from non member and Rs. 1819,580/- for disallowance u/s 40a(ia) of the Act for non deduction of TDS on interest paid to non members. 4. The assessee authority concluding the assessment that the following observations: “3.15 In view of the discussion made above in para 3.1 to 3.14, facts and circumstances of the case and provisions of law, it is held that the prime business of the assessee cooperative society is banking and its case fall under definition of a Co-operative Bank as defined a part V of the Banking Regulation Act, 1949 and therefore, the assessee is not eligible for deduction u/s 80P of the Income Tax Act, 1961, claimed at Rs.56,44,532/- and hence, the same is denied to the assessee. By claiming a deduction of Rs.56,44,532/- to which it was not legally entitled, the assessee has furnished inaccurate particulars its income for which penalty proceeding u/s 271(l)(c) are hereby initiated separately. 4. Disallowance u/s 40(a)(ia) of the Income Tax Act. 1961 As has been discussed above, the assessee has accepted deposits amounting to Rs.8,74,64,107/- from non-members. As per provisions of section 194A(1) of the Act read with sub-sec. (3)(i)(b), the assessee was required to deduct tax at source in each case where payment of interest on fixed deposits exceeded Rs.10,000/- or 5000/-during the year. As per details of interest earned furnished by the assessee during the assessment proceedings, it was noticed that in 63 cases, the amount of interest paid exceeded Rs.10,000/- each. I.T.A. No. 264/Asr/2018 5 The assessee was asked as to whether the tax was deducted at source as per provisions of Section 194A(1) of the Income Tax Act. The assessee vide its reply dated 20.12.2016 submitted that it "the assessee society is not deducting tax at source on the payment of interest as Sec. 194A3(v) provides a blanket exemption to the interest paid by any cooperative society to its members and the term cooperative society has been defined as a cooperative society registered under the cooperative societies act or any other law for the time being in force in any cooperative society state for the registration of the cooperative society. The assessee society is cooperative society duly registered under the Punjab State Cooperative Societies Act. Reliance in this regard is placed on the decision made by IT AT Amritsar in the Rurkee Cooperative Agri Multipurpose Society Ltd vs Jt CIT Phagwara. Further reliance is placed on the case decided by the ITAT Delhi on 14/11/2014 in the case of Kashipur Urban Coop Bank." I have gone through above referred facts of the case and provisions of law. . The provisions of clause (viia) of the section 194A(3) have no relevance to the facts of this case as discussed above in preceding paras since the assessee society has been held to be doing the business of banking and covered under the definition of a Cooperative Bank. Further, as discussed above in para 3.14(b), the decision of the Hon'ble ITAT, Amritsar in The Rurkee Cooperative Agri. Multipurpose Society Ltd is distinguishable on fact that the soceity's bye laws has no provision for nominal members as discussed above. Therefore, not applicable in the present case. I.T.A. No. 264/Asr/2018 6 The assessee was required to deduct tax at source on payment of interest exceeding Rs.10,000/- in 63 cases which amounts to Rs.18,19,580/- as per provisions of section 194A( 1) of the Act but failed to do so. The deduction of this amount of Rs.18,19,580/-claimed as part of Interest Paid on Deposits in the Profit and loss account for the F.Y. 2013-14 is not allowed as per provisions of section 40(a)(ia) of the Act. Hence the amount of Rs.18,19,580/- is hereby disallowed u/s 40(a)(ia) of the Act and added to the total income of the assessee. By claiming a deduction amounting to Rs.18,19,580/- as discussed above to which it was not legally entitled, the assessee has furnished inaccurate particulars of its income for which penalty proceeding u/s 271(l)(c) are hereby initiated separately. 5.Thus, total income of the assessee is computed as under: (in Rs.) Total income returned as per original return : NIL Addition as discussed above in para 3.15 above: 56,44,532/- Addition as discussed above in para 4 above : 18,19,580/- 74,64,112/- Total assessed Income : 74,64,112/- say 74,64,110/-” 5. The ld. Counsel for the assessee Mr. J.S. Bhasin, Adv. submitted the documents and argued vehemently. His main point of argument was that said assessee is a Cooperative Society Registered under Cooperative Society Act, 1912, Registration Certificate No. l46 dated 07.12.1919. It is engaged in procuring and selling fertilizers and cattle feed and other consumer goods, besides providing credit facilities to its members by accepting deposits from its members and nominal members. In addition to the income earned from above activities, it is also I.T.A. No. 264/Asr/2018 7 earning bank interest on loans advanced to its members, dividends and miscellaneous income. The society was catering only 547 of its members who had multiple amounts which were 540 in numbers but the ld. AO misread the number of accounts “540” as number of non-members and thus created a false canopy to build up a case that the assessee deal a non members was almost equal to its interaction with the number of its members. 6. The complete list of members bearing details with regard to number of shares held by each members, as filed with AO was also filed in this appeal. A copy of the list also stands filed before the bench with the Form No. 36 in appeal petition. The copy of the list is enclosed from page no. 13 to 29. 7. The ld. DR relied on the order of the ld. CIT(A) which is reproduced here as under: “4.9 I have carefully examined the judicial decisions relied upon by the appellant and find that on the identical facts, Hon’ble Madras High Court in its order dated 02.08.2016 in the case of Tiruchengode Agricultural Producers Cooperative Marketing Society Ltd. have held that-“once the State Co-operative Societies Act allows the same status to nominal/associates members, then the benefit of deduction u/s 80P of the IT Act should be given to the society. The deduction provision has to be interpreted liberally. The objection of the Revenue that members u/s 80P would include only the voting members, I.T.A. No. 264/Asr/2018 8 is a classification beyond the purview of the tax statue.” Last year, in the case of the appellant the claim was allowed after considering the decision of Hon’ble Punjab & Haryana High Court, Honourable Madras High Court and other decisions of different high Courts which were relied upon by the appellant. 4.10 However, the position now is different in view of the decision of the Honourable Supreme Court in the case of Citizen cooperative Society Ltd, dated 8 August 2017- where it has been held that -where assessee society was engaged in the activity of Finance business and was also engaged in the activity of granting loans to general public as well, it could not be termed as a cooperative society meant only for its members and providing credit facilities to its members, hence not entitled to deduction under section 80 P. 4.11 Thus, after going through the ratio of the judgment cited above, I find that it is necessary to go through the distinguishing features which have been pointed out by the appellant in the above chart. I have carefully gone through the facts of both the cases and do not find force in the contentions of the appellant as the appellant society is carrying on the activities of banking with the nominal/non-members of the society on a large-scale. It is evident that number of non-members with whom the transactions have been carried out by the society are far more than the number of members with whom the I.T.A. No. 264/Asr/2018 9 transactions were carried out by the appellant. Further, it is seen from the record that it is not only the number of non members which are more in number but the quantum of deposits made with the society is also much higher in their case. AO has clearly mentioned in the order that total amount of deposits received by the appellant society from non-members is Rs. 8.74 crore as against which deposits of only Rs.0.51 crore have been received from the members. Thus, about 94% the funds have been received from non-members by the society.” 8. The ld. DR further mention that there is no concept of the nominal member in the society. There are only members and non members i.e. decided as per the voting power of the members. The non members or nominal members has no voting power. So the investment to the non member is not allowed any benefit u/s 80P. The total income earned by the society from different activities out of that 90% of the income has been earned only from the interest income earned from FDRs and from the nominal member or non members. 9. In this respect the ld. Counsel for the assessee, Mr. Bhasin submitted a brief note which is kept in the record. Mr. Bhasin pointed out that the society in operation from 07.12.1919 many of his original shareholders has transferred from holdings to their own son and other members, thus, became the members by way of holding transferred shares. Another relevant point, highlight was that all the I.T.A. No. 264/Asr/2018 10 members hailed from village Birpind and Mahunwal, as in adjoining village Mahunwal did not exist any such society, to bring home the point that the society was not dealing with public at large. But only with its members who were natives of only the above named two villages. He further mentioned that the incumbent CIT(A) has passed an order on 04.10.2016 in assessee’s own case in appeal No.219/15-16/CIT(A)/Jal for immediate preceding year i.e. assessment year 2013- 14, wherein similar addition made by the ITO under identical facts by treating the assessee as a primary banking society, had been deleted in full. He further mentioned that the society is registered under the Co-operative Societies Act, 1912 and therefore, it is governed by the provision of said Act as further amended and consolidated by Punjab Co-operative Society Act 1961. In this Act the definition given in respect of Co-operative Society, member associate, member and a nominal member, being relevant is extracted below: “1. That the assessee society is registered under the Co-operative Societies Act, 1912 and therefore, it is governed by the provisions of the said Act as further amended and consolidated by The Punjab Cooperative Societies Act, 1961, in the said Act, definition given in respect of a coop, society, member, associate member and a nominal member, being relevant, is extracted below; a) "associate member" means a member who holds jointly a share of a co-operative society with others but whose name does not stand first in the share certificate; I.T.A. No. 264/Asr/2018 11 b) “co-operative society’ means a society registered or deemed to be registered under this Act; g) “Member means a person joining in the application for the registration of a co-operative society and a person admitted to membership after such registration in accordance with this Act, the rules and the bye-laws, and includes a nominal and an associate member and the Government when it subscribes to the share capital of a society: (ggg) “nominal member” means a person admitted to membership as such after registration in accordance with the bye-laws.” 10. We heard the rival submissions and considered the documents available on record. The deduction u/s 80P was disallowed related to income from investment from non member / nominal members. As per revenue authorities all the members other than the members are the non members. 10.1. The ld. Counsel is taking a contrary view that during the hearing respectfully observation was made in the order of the Apex Court in the case of Citizen Co- operative Society vs. ACIT. That is a case in which Andhra Pradesh Mutually Aided Co-operative Society Act, 1995 was under consideration which did not admit the nominal member within the ambit of the term ‘member’. Recently the Hon’ble Supreme Court in Mavilayi Service Co-operative Bank Ltd. & Ors vs. CIT 92021) 318 CTR (SC) 609: (2021) 197 DTR (SC) 361: (2021) 123 taxmann.com 161 (SC) considered its earlier judgment in Citizen Co-operative I.T.A. No. 264/Asr/2018 12 Society Ltd. Vs. Asstt. CIT (supra) vide para 46 of its order. Taking note of the fact that the Citizen Co-operative Society (supra), judgment dealt with the Andhra Act wherein the term ‘member’ did not include nominal member, the Hon’ble Supreme Court in Mavilayi Services (supra) held that the interest on loans given to nominal members under the Kerala, eligible under 80P(2) (a)(i) of the Act as the term ‘member’ under the Kerala Act included ‘nominal members’. In view of the forgoing discussion it is evident when the loans are given to nominal members and the relevant State Act includes, ‘nominal member’ within the purview of members there can be no question of denial of benefit u/s 80P(2)(a)(i). The definition in the Punjab Co-operative Society Act the nominal member is defined but the conflict here the revenue authorities did not accept the nominal member as a member. There are designated nominal member as a non member. The ld. Counsel filed the list of 457 members. The ld ‘AO’ wrongly mentioned 540. These are the members as nominal ascertaining the fact and the status of the members should be guided by the State Act. The ld. AO and the ld. CIT(A) both are not discussed the definition of members and nominal members as per the definition of the Punjab Co-operative Society Act 1961, the Hon’ble Supreme Court also directed to take to consider status of members on the basis of State Act of the Co-operative Society. 10.2. We directed the ld. Assessing Authority to consider the members and nominal members properly also to ascertain the non members by considering the I.T.A. No. 264/Asr/2018 13 State Act and the available records and a speaking order should be passed by the ld. AO. We are setting aside the issue before the ld. AO after considering the issue in light of the judgment of Hon’ble Apex Court and assessee’s record. On the other hand, the assessee should be allowed reasonable opportunity for his case. 11. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 19.05.2022 Sd/- Sd/- (Dr. M. L. Meena) (ANIKESH BANERJEE) Accountant Member Judicial Member AKV Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order